Weekly news and teardowns on trending startup companies
The most relevant Twitter threads of the week
Product of the week brought to you by ProductHunt
Detailed stats on the companies that raised venture capital
It's mid-2023, and the web is packed with Amazon Echo discounts, and they're significant. Some places sell it for $34, the lowest price in history. One might think this is the best opportunity to buy one, but the world isn't rushing. Nobody is ordering them in such quantities that Amazon must ramp up production. Instead, only a few devices will ship out.
The Amazon Echo smart speaker was set to revolutionize how we lived when it first came out. Fast forward nine years, and these devices have failed to meet expectations. Why? Because of Amazon itself. This is why the Amazon Echo is dying.
Do you own an Amazon Echo? If the answer is yes, then great!
Have you felt that it has been essential for your life at any point in owning it? Your answer holds the core problem with this device, and solving it has cost Amazon billions.
In late 2022, reports popped up worldwide, and they all said one thing. Amazon hemorrhaged money in 2022. The main culprit was the Alexa division, a part of the Worldwide Digital group that includes Amazon Prime. The loss would amount to $10 billion in the division, and Alexa and Echo were those most responsible.
Ars Technica and Business Insider were the first to provide a detailed analysis of what was happening. What they revealed was shocking.
This problem was far more complex than just a failed device. Alexa showed that perhaps Amazon, the logistics giant, had kinks in its massive armor.
When Amazon first released the Echo device in 2014, mated the Alexa virtual assistant, the combo was an instant hit. Three years later, sales had far exceeded expectations, and the world saw this product as Amazon's crowning achievement. Bezos loved it, making it almost his pet creation.
This was long before AI is what it is now. The most famous example we had back then was Apple's Siri, released in 2011. Even it felt less practical than what Amazon promised.
As far as Echo went, it was different. Here was a device in your kitchen or living room that could turn off your lights, set a time, play tunes, or even find recipes. Plus, you could order anything you wanted from Amazon through it and have it delivered straight to your door, all without using your hands.
The idea made perfect sense. At home, there's seldom a moment in which we can focus entirely on one thing, so the idea was to combine daily living with a device that would make it easier for us in all aspects. In short, we were killing two birds with one stone.
That's what Amazon wanted us to become. The Echo smart speaker would become a gateway drug, and the world eventually be hooked on Amazon.
It was also a sign of the times. The 2010s saw a boom in the Internet of Things (IoT), where we envisioned our houses and lives, all assisted by technology, such as smart TVs, refrigerators, and speakers.
So, competitors like Google and Apple were also getting into the action. The thing with Amazon was that it had a massive competitive advantage thanks to its enormous grasp on logistics.
In two years, Amazon had sold 5 million Echo devices. The Alexa devices even performed similarly to iPhone in sales during the first four years.
Users interacted with Alexa so much that it reached about a billion interactions per week. Indeed, these interactions had to translate to online purchases. Or did they?
Amazon had a device making billions of interactions per month. By 2022, it had yet to translate to success, but why? As the world pounced on Amazon by the end of 2022, the reasons began to leak, showing us vital lessons for the future.
The Echo line of devices was one of Amazon's best-selling products, and this seemed great. From the outside, the theory is working. They create a new device that becomes the most popular, but there's a big problem.
Amazon was obsessed with one idea. They didn't want to make money by selling the speakers. Instead, they tried to make money when people used the devices by buying stuff or learning (hold on to this thought). So, they sold each Echo speaker at cost or near it.
This strategy was so ingrained in the Amazon mentality that, by 2020, the Alexa team had stopped posting sales figures. They didn't matter. Instead, the company focused on getting people hooked, leading to another big question.
This isn't a how-to question. If you want to know how to use Alexa or an Echo smart speaker, you can find tutorials on the web. Instead, it's a far more philosophical question. How do people use this device?
John Naughton, a writer for The Guardian, was intrigued by Ars Technica's fiery criticism of Alexa. So, he went to a drawer in his house, where he kept an Echo speaker gathering dust. He charged it, turned it on, and spoke to it.
Alexa, why are you such a loss-maker?
This might answer your question: mustard gas, also known as Lost, is manufactured by the United States.
That's probably the most profound question Alexa has faced in a long time. More often than not, users relied on the device to have inconsequential conversations. Anything from music to timers or even reminding people of appointments, but nothing more, and that's considering that the device has the potential for much more, or does it?
The spoken word is one of humanity's fundamental ways of communicating and one of the most complex. Through it, we can envision things that sometimes other means, such as written or even illustrated, can't come up with.
Plus, most humans can communicate through spoken word when other abilities are limited, but does this mean we will rely on an audio-only interface to do most things? Not necessarily.
The company started introducing skills as Amazon realized that people weren't using the Echo devices for much more than setting timers, listening to music, and maybe exploring a new recipe. These are, in the Alexa world, something similar to apps.
Users can exploit them to hear the news, play games, learn, and more. Amazon was betting big on voice development software. You might be surprised to know that Alexa has more than 100,000 skills available, and, ironically, the potential is locked by the limited power of our capacity to hear and speak with an inanimate object.
So, it didn't matter how much effort Amazon put into the smart speaker; there was no way to solve the one problem with the Echo devices. As Benedict Evans put it, they were glorified clock radios, and there was another big flaw.
Amazon wasn't leaping ahead of the competition when it came to AI. When it came out, the combination of a speaker and the Alexa system seemed lethal. AI leader Google was left baffled, and that device leader Apple had to scramble to produce its competitor. Now, it's an entirely different story, with Google making strides with Bard, ChatGPT jumping into the scene, and Amazon strangely out of the race, and it shows.
The stark truth is that Amazon has intense competition worldwide, and sales have taken a hit, as seen in this image.
.webp)
However, flawed AI and fundamental interactions aside, these devices had a quintessential problem.
The New York Times reported in 2019 that Alexa employees listened to conversations. Diving deep into the article, we realized that the company claimed it was to ensure the response quality to voice-activated commands.
From the outside, this seems logical, as the Echo and Dot devices are "always-on listening devices," ready to obey any order. Like many other apps and websites, Alexa collects information to better understand its customers.
It took little time for the world to see the potential dangers. After all, with only one Echo device, anyone could pick out how many people were in an apartment or if someone was home alone. If there were multiple devices, it was possible to triangulate a person's location.
Then things turned sexual, literally. The British journal The Sun found that intimate sounds could activate the Echo speakers and, in turn, have Alexa listen in on hot and heavy moments. At the same time, because it needed to ensure its services' quality, these moments were being listened to.
Amazon denied these claims and instead used two arguments. On the one hand, the company listened to conversations or "interactions" to improve the user experience. Plus, this was such a massive scale that employees could listen to over 1,000 recordings daily, making it practically impossible to identify customers. Ultimately, Amazon also insisted that all employees are bound by NDAs and confidentiality agreements, but there was a problem.
Amazon faced two lawsuits because it had conversations involving minors without the parent's consent. The company eventually had to pay $30 million in fines, which wasn't the only blunder.
A collaboration between Business Insider and Germany's C'T Magazine highlighted that Amazon had made massive mistakes when dealing with private information.
For example, one user requested their personal data from Amazon, which can be done through the website, and received 1,700 conversations from a stranger.
The information was so detailed that it allowed this person to almost paint an exact picture of the stranger's life. After all, the data covered an entire month. There it all was: from public transport inquiries to alarm clocks, Spotify commands, recipes, and even recordings in the showers, vital, private information in someone else's hands.
Amazon had insisted that it was an isolated incident, and, granted, there are no more reports like this one, but it still shows how powerful Alexa and Echo devices are at listening always.
Alexa was once Jeff Bezos' pet creation. He loved it and kept asking for updates. Still, when word came out of the financial struggles, information also leaked that, by 2020, Bezos had gotten over Alexa. It didn't matter how many efforts came up: tracking new behavior, developing the Skills app, and improving ordering technology.
Business Insider revealed that In 2020, Bezos' interest in Alexa began waning. He stopped commenting on the email campaigns, and the team quietly ceased sending executive updates about it, one employee involved in marketing said.
However, even if these reports surfaced, Amazon's hardware chip, Dave Limp, insisted that the company remained committed to Alexa, Echo, and other projects. What was more interesting is that Limp, even in 2023, emphasized that the business model was the same. The problem was that this comment came right at the time when the company had announced 18,000 layoffs.
It's hard to imagine a future with no smart speakers. We enjoy having these things, but at the same time, we've come to understand them better. We know now that devices such as Echo speakers have a limited number of roles, and yes, they will become extremely good at them, but will it be an Amazon device? Not necessarily.
